- Key insight: Banks have the discretion to explain account closures, short of disclosing the existence of a suspicious activity report, or SAR, filing. Regulators should make it mandatory.
- Supporting data: The debanking debate has started getting a lot more attention in the mainstream media as Capital One has had to justify in court why it closed hundreds of accounts tied to President Trump and his businesses back in 2021.
- Forward look: Banks should be required to give a specific reason when they close an account. They should never have to disclose that they filed a SAR, but should only be allowed to withhold the reason where giving it would genuinely tip off a live investigation.
A crypto client came to me a few months ago, telling me that their bank account had been closed. They'd been
I've seen this happen time and time again for years. Businesses deemed too high-risk. Accounts closed
More recently, the debanking debate has started getting a lot more attention in the mainstream media as Capital One has
The bank says it followed a legitimate internal AML review, conducted in line with its own policies. The Trump Organization, on the other hand, sees it very differently and says the AML explanation was a pretext, and that the real reason was political. Maggie Hassan, a Democratic senator for New Hampshire, now
It's absolutely not my place to referee or weigh in on that dispute. The part that I do find particularly interesting here is that a sitting senator is putting in writing the same question businesses have been asking for years.
That, to me, says quite a lot about how far this issue has come.
On Sept. 2 of this year, a
It essentially clarifies that confidentiality doesn't actually stop banks from discussing the underlying facts behind an account closure. The confusion, it seems, has been around suspicious activity reports.
Suspicious activity report, or SAR, confidentiality protects the report's existence. It doesn't mean that a bank needs to be confidential on the underlying facts.
This means that a bank can, in fact, tell a customer that a closure is connected to a suspected fraud. They can also give them an explanation of what transaction or activity type flagged this suspicion. What it can't do is tell the customer that it filed a SAR.
That distinction is really important and, in my view, it's a genuinely positive step toward addressing one of the reasons behind the unnecessary debanking of legitimate businesses.
Banks have said for years that they simply couldn't explain why an account had been closed due to confidentiality requirements. Now we have regulators making clear that the law doesn't necessarily prevent them from explaining the underlying facts.
That should make it much easier for banks to have a more useful conversation with their customers.
Read more:
What comes next for banks in a post-CLARITY Congress Warsh: Rising bond yields a sign of strong U.S. economy Borrowing from Federal Home Loan banks jumped 20% in 2Q State bank examiners get a playbook for inspecting AI
It's not, however, all good news. There's a caveat in the statement's wording.
Verbatim, it says that banks and credit unions should consider customer communication on a case-by-case basis. So, the bank can explain, but it still doesn't have to.
Compliance officers don't get praised for volunteering information freely. Their role is to ensure that no exposure is being created for the bank they work for. So given the choice to explain or stay quiet, it's extremely likely that they'll do the latter.
When I read the news, I was working from my office in London, where this argument has been settled very differently. And, I think, not much better.
Since April of this year, banks in Britain are now
That rule isn't at all absolute. In Reg 51C it stipulates that the notice and reasoning can be removed entirely if there's reasonable grounds to suspect the service has been, is being, or will be used in connection with serious crime. That's the scenario the American statement deals with, a bank that suspects something and is working out what it can say.
So, in Britain, the starting point is you must get a reason. But if the bank suspects serious crime, it can choose not to give you one. In America, the bank can give you a reason. It can explain the transactions and activity or other facts behind its decision. But it doesn't have to.
Put them side by side and what's missing becomes obvious. The American scope with the British default.
In my opinion, banks (both in the U.S. and U.K.) should be required to give a specific reason when they close an account. They should never have to disclose that they filed a SAR, because that stays confidential for good reason, but should only be allowed to withhold the reason where giving it would genuinely tip off a live investigation, not simply because it suspects something.
That means writing an obligation into rule rather than guidance, which isn't something any bank can do for itself.
In the meantime, banks should focus on what they can control and make explanation the default and silence the exception.
They can also benefit from keeping internal notes of this reasoning. Capital One's defense is that it followed its own policies. How well that holds up depends on what was recorded at the time.
The client I mentioned at the start of this article still doesn't know what happened to their merchant account. Under this new guidance their bank could tell them tomorrow, and give them the full explanation as to why. The only thing is, nothing in it says they have to.
